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FINRA Fines Wells Fargo and Merrill Lynch for Sale of Floating-Rate Bank Loan Funds

On June 4, the Financial Industry Regulatory Authority (FINRA) ordered Wells Fargo Advisors LLC and Merrill Lynch to pay back their customers more than $3 million for losses from unsuitable sales of floating-rate bank loan funds. Wells Fargo Investments, LLC was fined $1.25 million and ordered to reimburse approximately $2 million in losses to 239 customers. Merrill Lynch was fined $900,000 and has to reimburse about $1.1 million in losses to 214 customers.

Floating-rate bank loan funds are mutual funds that typically invest in a portfolio of secured senior loans made to businesses with low credit ratings. Thus, the funds are subject to significant credit risks and can be illiquid.

FINRA’s investigation found that Wells Fargo and Merrill Lynch brokers recommended concentrated purchases of floating-rate bank loan funds to customers whose risk tolerance, investment objectives and financial conditions were inconsistent with features of the floating-rate loan funds. Additionally, the firms failed to train their sales teams regarding the unique risks and characteristics of the funds and the sales of these bank loan funds.

In the settlement, the two firms neither admitted nor denied charges, but consented to FINRA’s findings. Click here to read FINRA’s news release.


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